Growth to value: Option exercise and the cross section of equity returns

Journal of Financial Economics

Volumn 107, Issue 2, 2013, Pages 325-349

  Ai, Hengjie ^a   Kiku, Dana ^b  

^a UNIVERSITY OF MINNESOTA   (United States)

^b UNIVERSITY OF PENNSYLVANIA   (United States)

Author keywords

Firm dynamics; General equilibrium; Long run risks; Real options; Value premium

Indexed keywords

EID: 84873153751     PISSN: 0304405X     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jfineco.2012.08.009     Document Type: Article

References (56)

1. Abel A., Dixit A., Eberly J.C., Pindyck R. Options, the value of capital, and investment. Quarterly Journal of Economics 1996, 111(3):753-777.
2. Abel A., Eberly J.C. A unified model of investment under uncertainty. American Economic Review 1994, 84(5):1369-1384.
3. Ai, H., 2010. Intangible capital and the value premium. Unpublished working paper. Duke University.
4. Ai, H., Croce, M.M., Li, K. Toward a quantitative general equilibrium asset pricing model with intangible capital. Review of Financial Studies, forthcoming.
5. Bansal R., Dittmar R., Lundblad C. Consumption, dividends, and the cross section of equity returns. Journal of Finance 2005, 60(4):1639-1672.
6. Bansal R., Dittmar R.F., Kiku D. Cointegration and consumption risks in asset returns. Review of Financial Studies 2009, 22:1343-1375.
7. Bansal, R., Kiku, D., Yaron, A., 2007. Risks for the long run: estimation and inference. Unpublished working paper. Duke University and University of Pennsylvania.
8. Bansal R., Yaron A. Risk for the long run. a potential resolution of asset pricing puzzles. Journal of Finance 2004, 59(4):1481-1509.
9. Berk J., Green R.C., Naik V. Optimal investment, growth options, and security returns. Journal of Finance 1999, 54:1553-1608.
10. Bhamra H.S., Kuehn L.A., Strebulaev I.A. The levered equity risk premium and credit spreads. a unified framework. Review of Financial Studies 2010, 23(2):645-703.
11. Bischoff C.W., Kokkelenberg E.C. Capacity utilization and depreciation in use. Applied Economics 1987, 19:995-1007.
12. Brandt, M.W., Chapman, D.A., 2008. Linear approximations and tests of conditional pricing models. Unpublished working paper. Duke University and Boston College.
13. Breeden D.T. An intertemporal asset pricing model with stochastic consumption and investment opportunities. Journal of Financial Economics 1979, 7:265-296.
14. Campbell J.Y., Shiller R.J. The dividend-price ratio and expectations of future dividends and discount factors. Review of Financial Studies 1988, 1(3):195-228.
15. Carlson M., Fisher A., Giammarino R. Corporate investment and asset price dynamics. implications for the cross section of returns. Journal of Finance 2004, 59(6):2577-2603.
16. Chen H. Macroeconomic conditions and the puzzles of credit spreads and capital structure. Journal of Finance 2010, 65(6):2171-2212.
17. Chen L., Petkova R., Zhang L. The expected value premium. Journal of Financial Economics 2008, 87:269-280.
18. Cooper I. Asset pricing implications of nonconvex adjustment costs and irreversibility of investment. Journal of Finance 2006, 61(1):139-170.
19. Da Z. Cash flow, consumption risk, and the cross section of stock returns. Journal of Finance 2009, 64:923-956.
20. Da, Z., Guo, R., Jagannathan, R., 2009. CAPM for estimating the cost of equity capital: interpreting the empirical evidence. Unpublished working paper 14889. National Bureau of Economic Research. Cambridge, MA.
21. Dechow P., Sloan R., Soliman M. Implied equity duration. a new measure of equity risk. Review of Accounting Studies 2004, 9:197-228.
22. Duffie D., Epstein L.G. Asset pricing with stochastic differential utility. Review of Financial Studies 1992, 5(3):411-436.
23. Duffie D., Epstein L.G. Stochastic differential utility. Econometrica 1992, 60(2):353-394.
24. Duffie D., Lions P.L. PDE solutions of stochastic differential utility. Journal of Mathematical Economics 1992, 21(6):577-606.
25. Epstein L., Denny M. Endogenous capital utilization in a short-run production model. theory and empirical application. Journal of Econometrics 1980, 12:189-207.
26. Epstein L., Zin S.E. Substitution, risk aversion, and the temporal behavior of consumption and asset returns. a theoretical framework. Econometrica 1989, 57(4):937-969.
27. Fama E., French K.R. The cross section of expected stock returns. Journal of Finance 1992, 47(2):427-465.
28. Ferson W.E., Harvey C.R. The variation of economic risk premiums. Journal of Political Economy 1991, 99:385-415.
29. Ferson W.E., Harvey C.R. Conditioning variables and the cross section of stock returns. Journal of Finance 1999, 54:1325-1360.
30. Gala, V., 2005. Investment and returns. Unpublished working paper. University of Chicago.
31. Gârleanu N., Panageas S., Yu J. Technological growth and asset pricing. Journal of Finance 2012, 67:1265-1292.
32. Gomes J., Kogan L., Zhang L. Equilibrium cross section of returns. Journal of Political Economy 2003, 111(4):693-732.
33. Gourio, F., 2006. Firms' heterogeneous sensitivities to the business cycle and the cross section of expected returns. Unpublished working paper. Boston University.
34. Hansen L., Heaton J., Li N. Consumption strikes back? Measuring long-run risk. Journal of Political Economy 2008, 116:260-302.
35. Jagannathan R., Wang Z. The conditional CAPM and the cross section of expected returns. Journal of Finance 1996, 51:3-53.
36. Kiku, D., 2006. Is the value premium a puzzle? Unpublished working paper. Duke University.
37. Kogan, L., Papanikolaou, D., 2010. Growth opportunities, technology shocks, and asset prices. Unpublished working paper. Massachusetts Institute of Technology and Northwestern University.
38. Kreps D.M., Porteus E.L. Temporal resolution of uncertainty and dynamic choice theory. Econometrica 1978, 46(1):185-200.
39. Kushner H.J., Dupuis P. Numerical Methods for Stochastic Control Problems in Continuous Time 2001, Springer-Verlag, NY, Inc., New York, NY.
40. Kyle, A.S., 2004. A two-factor model of value and growth with adjustment costs. Unpublished working paper. Duke University.
41. Lettau M., Ludvigson S. Resurrecting the (C)CAPM. a cross-sectional test when risk premia are time-varying. Journal of Political Economy 2001, 109:1238-1287.
42. Lewellen J., Nagel S. The conditional CAPM does not explain asset pricing anomalies. Journal of Financial Economics 2006, 82:289-314.
43. Lucas R. Asset prices in an exchange economy. Econometrica 1978, 46:1429-1446.
44. Luttmer E.G.J. Selection, growth, and the size distribution of firms. Quarterly Journal of Economics 2007, 122(3):1103-1144.
45. Malloy C., Moskowitz T., Vissing-Jorgensen A. Long-run stockholder consumption risk and asset returns. Journal of Finance 2009, 64:2427-2479.
46. Mankiw G.N., Shapiro M.D. Risk and return. consumption beta versus market beta. Review of Economics and Statistics 1986, 68:452-459.
47. McDonald R., Siegel D. The value of waiting to invest. Quarterly Journal of Economics 1986, 101(4):707-728.
48. Miao J. Optimal capital structure and industry dynamics. Journal of Finance 2005, 60(6):2621-2659.
49. Newey W., West K. A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix. Econometrica 1987, 55:703-708.
50. Novy-Marx, R., 2008. Competition, productivity and the cross section of expected returns. Unpublished working paper. University of Chicago.
51. Øksendal B., Sulem A. Applied Stochastic Control of Jump Diffusions 2004, Springer, Berlin, Heidelberg, New York.
52. Petkova R., Zhang L. Is value riskier than growth?. Journal of Financial Economics 2005, 78(1):187-202.
53. Santos T., Veronesi P. Labor income and predictable stock returns. Review of Financial Studies 2006, 19:1-44.
54. Schroder M., Skiadas C. Optimal consumption and portfolio selection with stochastic differential utility. Journal of Economic Theory 1999, 89(1):68-126.
55. Weil P. The equity premium puzzle and the risk-free rate puzzle. Journal of Monetary Economics 1989, 24(3):401-422.
56. Zhang L. The value premium. Journal of Finance 2005, 60(1):67-103.